Ten common mistakes made by contract bookkeeping services
As Chartered Accountants, we see a lot of sets of accounts prepared by contract bookkeepers and can quickly spot most of the mistakes that they commonly make. Here are our top ten –
- They forget to bring the share capital to account because nobody actually puts the R100 or R120 into the company’s bank account. The correct entry is debit loan account, credit share capital. Incidentally, in terms of the Companies Act, the shares MUST be paid for, but who’s going to argue about R120?
- The accountants (us for instance) make year end adjustments to correct the accounts and to provide for tax. Most contract bookkeepers fail to understand that they must make those adjustments in their books before year end and that the final year end trial balance must agree with that of the accountant.
- It is very often the case that fixed assets are not depreciated, or if they are, the depreciation expense is lumped together in one account instead of individual accounts for each asset class.
- We often see amounts posted to current taxation. This is always wrong because you can’t work out the tax until the accounts have been otherwise finalised. These amounts are usually payments of PAYE or provisional tax.
- Tax penalties and interest paid are often posted as a debit to the SARS account instead of to an expense account.
- Accounts which should clearly be in credit (such a PAYE Control account) may be in debit and we immediately know that something is wrong.
- Petty cash should be a small figure. If it is more than the petty cash carried (e.g. R5 000), this indicates that (a) the company is using the wrong method of controlling petty cash and (b) they are repeatedly drawing petty cash without accounting for how it is spent.
- When a fixed asset, such as a motor vehicle is sold, the correct entries are credit fixed asset at cost, debit accumulated depreciation, debit the bank with the proceeds and then debit or credit loss/gain on disposal of fixed assets with the balancing figure. If the asset is traded in against a new one, then the trade-in reduces the liability to the finance company, not the cost of the new asset.
- When payments are made against an instalment sale agreement, the payment must be split between capital (reducing the amount of the liability) and interest (increasing the interest paid expense). Most contract bookkeepers post the entire payment to the liability account.
- If an expense account is in credit, there’s almost certainly an error in there.
We frequently find that our fees for sorting out the mess are higher than our fees would have been if we had been engaged to do the bookkeeping in the first place.